Sandy Sigal On Retail’s Resiliency and the Data Boom for Shopping Centers

Sigal recently caught up with Commercial Observer and spoke candidly about the latest and largest market challenges, as well as the new growing opportunities this year for retailers and investors moving forward.

The interview has been edited for length and clarity. 

Commercial Observer: Can you look back to the past 12 months and tell me what defined it for you in terms of your relationships with tenants?

Sandy Sigal: This has been a very disruptive 12 months. Where we started, it was sky’s the limit. No one thought interest rates would do what they ended up doing. You start off with an incredibly aggressive lender and acquisition market. And, here at the end of the year — let’s say we’re calling this a 12-month whirlwind — you’re at a point where lenders have all pulled back, no one wants to really buy anything. 

There’s a lot of interest in investing capital in retail, because retail is one of the few investments that seems to have survived a lot of trouble. I mean, no one is going to invest in office right now. The cap rates on apartments and industrial, it’s too low, unless you’re going to have negative leverage on debt. So retail is the most desirable product type. But people are trying to figure out how to buy on a cap rate that makes sense with this level of debt. And you’re seeing a huge mismatch. 

On top of the rising interest rates, are you also feeling pressure because of the regional banking crisis? Was there a lot of funding in the retail side from that particular segment?
Oh, yeah. Oh, yeah. 

There’s a project we’re just finishing — the Rialto Village. We had it 100 percent leased during COVID, fully entitled, and fully bid out. And we went to banks and had a hard time playing the construction debt. 

And we’re not talking about high-leverage stuff, just normal run of the mill, easy. In the past, I would be figuring out how to play one lender against the other. 

With Rialto we ended up with a regional bank, who, by the way, toward the end, was sort of trying to figure out how to get out of the deal. And, by the way, that regional bank was one of the ones that almost went broke. It’s probably going to be a survivor, but it was one of the ones on the list. 

So, yes, all these guys are in fear of taking on debt.

Was it PacWest?
No. It almost was PacWest. They were one of the options. Torrey Pines, which is owned by Western Alliance Bank, ended up doing the debt. And that was great, because they are great. 

Believe me, at the end of the day, they closed in what I know is a difficult time for them. But for me, with the Rialto development, it was like, “Guys, what’s the problem?”

Last question about all the new challenges: What sort of tenants are struggling the most right now because of everything that’s going on?
You have a tale of two cities. You have some tenants who are killing it and who are expanding or signing tons of those leases. And then, obviously we had the movie theaters, because of a very specific situation because of COVID, and streaming, in California.

So Regal was involved. But they’re coming out of bankruptcy. So we saved that one, it looks like. Party City — just a tough, tough go for those guys. Really, really difficult. Bed Bath and Beyond, obviously, you know, total liquidation. All those boxes come available to market. 

Big Lots is definitely struggling. Citi Trends is having its issues. 99 Cent Store, a tenant we love and a big tenant of ours, just has too much debt. Tuesday Morning went out of business.

But look, here is what I say about that, and why that doesn’t freak me out. Retail is always an evolving business. This is the business we signed up for. The business we signed up for said: We’ve got to change, we’ve got to evolve, we gotta grow. And if you don’t — look, Blockbuster was great until it wasn’t. It’s the nature of the business we signed up for.

OK, so what are you excited about? Who’s doing well? What tenants are doing it right?
On the tenant side, Burlington, Ross, Marshalls, TJ Maxx. We’re very excited about Five Below. 

There are Hispanic grocers, fantastic grocers out there, who are really spot on. I’m super excited about some of these ethnic grocers who know the community, speak to the community, and thrive with different products. And I love what they do for our centers. Grocery outlets are doing great. They’re growing and they’re locally operated.

The one thing with grocers, just right now, is what happens with the merger between Kroger and Albertsons, because when that happens they’ll be closing 300 stores and they’ll get sold to someone else. But no one knows which ones it will be, and you have to look at everything that could happen. And uncertainty freaks us out.

Does it feel like we’re at a point where we can stop talking about foot traffic concerns and COVID crushing retail?

COVID, for me, is an interesting dividing line. […] From my perspective, I look at 2019 as kind of a baseline year and say, “Are we back to pre-COVID numbers?” 100 percent, and beyond. COVID for our company — speaking just from a business perspective — it gave us the opportunity to get much closer to our communities. And our connection to our communities is like nothing I’ve ever had in my 35 years. And we worked hard every one of those 35 years to get closer to the communities. 

Those two, three years separated the people who really cared and have a long-term view from those who were just trying to figure out how to maximize their yield. And I think that was a good thing.

How about the next 12 months? What will define the next 12 months for you, whether or not it’s just hoping interest rates come down?
I’m so optimistic about our business, but for reasons that I don’t think you would normally expect. I think we figured out how to be close to our communities. I think we figured out how to run assets and buy the right assets. 

And I think about this technology evolution that’s been happening in our business. Remember, we were deaf, dumb and blind five years ago. If you think of the world prior to five or six years ago, the amount of data that we actually looked at. How many people really knew how much traffic in real terms came to the shopping center on a regular day? How many people knew how those people cross-shopped, and where they went or where they came from, or how their stores ranked if they needed sales? How many people really knew any of that? 

Today, we have total visibility. It’s unbelievable the data we have. We’re going to know what the customer thinks, we’re going to know which tenants are achieving their full potential, which ones have further to go, and which ones we should replace.

I think the ability to fine-tune our portfolios and fine-tune how we work with our customers so that they’re excited about coming to our centers, I think it’s going to be amplified by a factor of 10. Then you throw on the AI layer, and you think: What kind of efficiency can I achieve?

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.